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Mathematical analysis of financial decentralization and economic efficiency in both state‐owned and private enterprises
Author(s) -
He MeiLing,
Jiang Qijie,
Hong Zheng
Publication year - 2018
Publication title -
concurrency and computation: practice and experience
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.309
H-Index - 67
eISSN - 1532-0634
pISSN - 1532-0626
DOI - 10.1002/cpe.4750
Subject(s) - decentralization , economic efficiency , economics , economic system , business , capital (architecture) , population , order (exchange) , finance , industrial organization , financial system , market economy , demography , archaeology , sociology , history
Summary The relationship between financial decentralization and economic efficiency has been a hot topic in the recent years. Modern enterprises, especially smart manufacturing enterprises, compared to traditional enterprises, have quantities of distinctive attributes. Given this situation, it is worthy of studying what role the financial decentralization plays in improving economic efficiency of both state‐owned and private enterprises. In this paper, a mathematical model is built and utilized to explore the determinants of financial decentralization and the relationship of financial decentralization and economic efficiency. Specifically, the model is extended from the overlapping generations model (OLG), and the first order condition is taken into account to maximize corporate profits and personal utility and to deduce the channels through which financial decentralization affects economic efficiency. Results show that financial decentralization is related to the size of the population employed by the private economy and it contributes to enhancing economic efficiency by affecting the capital efficiency of private companies and the capital quota of private enterprises. This paper theoretically enriches the literature on the factors of economic efficiency and has significant implications in economic efficiency.